[SOLUTION]  Price Elasticity for Mercedes

Company is Mercedes Supply and Demand Conditions There are two rubric elements to be included in this section and combined they should be about 2 pages in length, perhaps longer if you present more than one graph/table. The first element asks you to evaluate the trends in demand over time and explain their impact on the industry and on the firm. To do this, you can consider market demand. Market demand is the demand by all the consumers of a given good or service. Find out who your customers are and provide detail on them. Use annual sales data to find out how much of the product is purchased. Here is a video explaining each of the following determinants of market demand that you could examine for your company’s market: o Income o Price of related goods o Tastes o Population and Demographics o Expected Future Prices The second rubric element to be included in this section is your analysis of information and data related to the demand and supply for your firm’s product(s) to support your recommendation for the firm’s actions. You have already presented the overall trends in demand in the last element. In this rubric element, you will first collect data specific to your company on demand. To do this, look at the following: ? Sales and Revenue. Building on the idea of market demand, consider how the annual sales data changed over time for your company in particular. ? Include a graph/table/chart of sales for your company. This may be in dollars, product quantity or number of customers – whichever is most relevant for your firm. You could use more than one, if you think that would give a more detailed picture of demand for your company’s product or service. ? Include 5 or more years of data will be enough to show a trend that is supported by your market demand discussion. ? Data can be found from the company’s annual reports and revenue can more specifically be found in the company’s income statement. One you have analyzed the demand side, you can now look at the supply side of your company. For this, you will want to watch this video on the determinants of supply, just as we examined the determinants of demand in the last rubric element. Here, some of the pieces you could explore and provide data on are: ? Input costs ? Technological Improvement ? Prices of substitutes ? Number of firms in the market ? Expected future prices Price Elasticity of Demand This section has three elements and should be 1-2 pages long. The first element asks that you analyze information and data to justify how the price elasticity of demand for your product is determined. Here, you will have to use pricing of your product, the trend in the price over time and comparison to similar products to justify whether you find the price elasticity of demand to be either elastic or inelastic. You may not be able to calculate a specific price elasticity of demand (video), depending on your company and the available information. However, looking at pricing data should help you justify whether demand is inelastic or elastic. You will then take your justification one step further in the second rubric element and explain the factors that affect consumer responsiveness to price changes. You can learn more about these factors from this video on the determinants of price elasticity of demand. Explore the following determinants as they relate your company’s product(s): ? Availability of substitutes ? Passage of time ? Luxury or necessity ? Definition of the market ? Share of budget The third and last element in this section ask you to assess how the price elasticity of demand impacts the firm’s pricing decisions. As you read in Chapter 6 in our textbook, there is a relationship between elasticity of demand and revenue. You can watch this video to review the relationship between price elasticity of demand and total revenue and explain how this relationship influences the company’s pricing decisions. For instance, if a company sells a product that has very elastic demand, meaning customers are very responsive to a price change, then increasing their price means that their total revenue will decrease. This could explain why, in such a situation, the company may decide to not raise prices, even if their costs are going up. This is just one example so be sure to make your analysis relevant to your company’s specific situation. Specifically the following critical elements must be addressed: II. Explore the supply and demand conditions for your firm’s product. a) Evaluate trends in demand over time and explain their impact on the industry and the firm. You should consider including annual sales figures for the product your firm sells. b) Analyze information and data related to the demand and supply for your firm’s product(s) to support your recommendation for the firm’s actions. Remember to include a graphical representation of the data and information used in your analysis. III. Examine the price elasticity of demand for the product(s) your firm sells. a) Analyze the available data and information, such as pricing and the availability of substitutes, and justify how you determine the price elasticity of demand for your firm’s product. b) Explain the factors that affect consumer responsiveness to price changes for this product, using the concept of price elasticity of demand as your guide. c) Assess how the price elasticity of demand impacts the firm’s pricing dec

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